Cyril Ramaphosa, South Africa's president, shows the signed bill for National Health Insurance signed into law in Pretoria, South Africa, on Wednesday, May 15, 2024. (Leon Sadiki/Bloomberg via Getty Images)
South African citizens will have to endure being taxed more, in one form or another, to fund the National Health Insurance which was signed into law earlier this month.
President Cyril Ramaphosa signed the bill on 15 May, a couple of weeks before the 29 May general elections, sparking criticism — including from opposition political parties — that the governing ANC was pushing through a “populist policy” to gain more votes.
Questions about how the controversial scheme will be funded have been the subject of much discussion after the president said the money would come from the tax base. This suggests that funding will either be raised from personal income tax or value-added tax (VAT).
The tax implications for employers and employees in the short to medium term are going to be an increase in payroll taxes and surcharges, Jurgen Eckmann, a wealth manager at Consult by Momentum, told the Mail & Guardian. Payroll tax comprises unemployment insurance (UIF) and compensation funds.
The department of health has proposed a 2% surcharge on income tax and a 2% increase in payroll taxes.
“The removal of medical aid tax credits is where we are going to see the immediate tax implications before we get a better idea of what it’s going to look like,” Eckmann said.
“It will almost look like a triple tax and what that means is that individuals will continue with their pay-as-you-earn taxes plus there is going to be the NHI 2% and plus they will pay for medical aid.”
According to accounting and tax firm Latita Africa, a South African earning an average salary of R26 000 per month would have to pay an additional R1 040 monthly to fund the NHI.
This is because of the 2% surcharge and the removal of the medical aid tax credit, which is R364 a month.
Those who want to, will be able to maintain their private medical aids, but with the scrapping of medical tax credits they will not be compensated for it. Medical tax credits are regulated by the Income Tax Act, where taxpayers are given relief for paying medical aid and thereby contributing to the revenue which provides for the public health budget.
The NHI will pay for people to see a general health practitioner, but should they require additional cover that is not within the ambit of the NHI — and to see specialists — they would still need additional medical aid cover, Eckmann explained.
In essence, the broad scope of the NHI, incorporating what currently falls under private healthcare, will mean more pressure on the already overburdened public health budget, said Zeta King, an accountant and tax consultant at Latita Africa
“This is frustrating because the public healthcare budget is used for the upkeep of public healthcare. Now, instead of solving that problem, we are extending the scope to private healthcare, which will need to be met with a bigger budget, leaving us with the same problem,” she said.
Funding the NHI will require an estimated R200 billion. According to health services group Discovery, if VAT were used to secure the amount, it would have to be increased from 15% to 21.5%. If personal income tax is used, taxes would need to be increased by 31%.
Eckmann said that the R200 billion a year needed to fund the NHI is a conservative estimate and that the actual figure could go as high as R1 trillion per annum.
Largely concurring with Discovery’s estimates, Eckmann said if NHI was funded via VAT, that tax would have to rise to 21%. If it was to be funded from personal income tax, there would be an average increase of 31% across the board, meaning “whatever tax you are paying now, you’d have to pay 31% more”.
He said there would be an increase of R1 565 per month for payroll tax in formal sectors.
“This would be an increase for everyone, from your lowest income earners to the highest income earners, which we know is not equitable. The numbers are huge and it’s daunting. It does feel like an electioneering tool from the ruling party,” Eckmann said.
According to King, while it might not be practical to obtain most of the NHI funding from the tax base, there are not many other options for the government.
“It’s the only viable option,” she said.
Worryingly, the South African Revenue Service (Sars) experienced a sharp deterioration in tax revenue collection for 2023-2024 due to sluggish economic growth. In his 2024 budget speech, Finance Minister Enoch Godongwana said the R1.73 trillion revenue was R56.1 billion lower than had been estimated in the 2023 budget.
If the NHI is funded through personal tax, that would cut the buying power of individuals, while businesses would be unable to retain their clientele, King said.
“This bill affects the business functionality as a whole ,especially if you are a small business that does not operate on huge tenders and contracts,” she said. “Can their target market afford them now?”
Although the NHI is still a fairly long way from becoming a reality, funding needs to start before it can be implemented.
“It may come into play in 2046 but collection needs to start now for that to happen. We might see some of these tax increases coming in sooner,” King said.
This is not ideal in a country with a relatively high interest rate environment and unemployment at all-time highs, Eckmann said.
“GDP has been diminishing over the last few years and it shows that the economy is struggling,” he said.
“The citizens are the ones suffering the most — how do you tell everyone in South Africa that they have to pay more taxes? It’s a conundrum.”